Definition Of Auditing | Advantages And Disadvantages

It is expected that at the end of every accounting period, the accountant of any organization be it profit-making or non-profit making organization should be able to prepare a financial statement of account for the period. 

 

 

The financial statement shows the activities of the organization in a particular period. The responsibility of the accountant ends at this point. It is now left for the auditor to carry out an independent examination of the financial statement. Auditing is usually done periodically.

 

What Is Audit?

An audit is an independent examination carried out on the financial statement of an organization to check if the information provided represent the true state activities carried out in the organization and to express an opinion. 

 

What Is Auditing?

Auditing is the process of examining the financial statement of an organization to ascertain if it conforms with laid down principles of accounting, to check if the information provided represents the true view of the financial position of the organization to express an opinion an independent opinion. 

 

Advantages Of Auditing

1. Auditing helps the users of the financial statement to place more reliance on the audited financial statement.
2. Auditing helps to make employees more committed and sincere when preparing the financial statement since they know the financial statement will be examined.  
3. It helps in detecting fraud and correction of error.
4. It helps the financial records to be thoroughly prepared to represent the exact position of the state of affairs of the organization.
5. It is the auditors that conduct that have expert knowledge of accounting procedures and legal formalities.
   
   

Disadvantages Of Auditing

1. It involves extra cost because more hands will be employed to carry out the deep examination of the financial records. Also, the organization will take care of any additional fees or expenses arising from the conduct of the audit. 
2. The reports of the audit serve as the evidence to make major changes in the accounts that will help in the distribution of profits.
3. The result of the audit sometimes is affected due to the rules and regulations of the business varies from time to time.
4. Because of the rigorous processes involved in the auditing process, smaller organizations prefer to ignore auditing practice.
5. The auditing reports at times are prepared based on the agreed information as provided by the clients so it may not be reliable if such happens.  
6. Auditors rely on the information provided by valuers and lawyers for valuation of non-current assets and estimation of contingent liabilities. 
7. Auditors do not have the responsibility of detecting fraud or transactions that were not recorded in the books of account of the organization.
8. For big organizations, it may be difficult for the auditors to examine all the transactions because it is too big, so the auditors can only do a random sampling on the books.
   
   

Types Of Audit

Different types of audit can be conducted depending on the timing, purpose and the circumstances involved. 

External Audit

This is an audit conducted by external auditors that has the professional skills to do so. Since they are independent, they provide an unbiased report to the organization. The external auditors conduct such audit on yearly basis at the end of the accounting year.

 

Internal Audit

This is the audit conducted by the staff of the organization called internal auditors. They are dependent on the authorities of the organization. The internal auditors are in charge and help to strengthen the internal control of the organization. They report directly to the board of directors of the organization.

 

Internal Revenue Services ( IRS ) Audit

This is an audit conducted by the audit department of the internal revenue board. It is a routine audit conducted to check the accuracy of the tax returns and other transactions submitted by the organization when filing their returns.

 

                                                    Conclusion

Auditing is simply an independent examination that must be carried out periodically on the books of account of an organization.

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